Can anyone run Citigroup?

We know this banking giant is too big to fail. But is it also too big to manage?

Citi's savior? Pandit must tame a beast his predecessors have found hard to handle.

A history of errors

Overreaching for profits, Citi CEOs from Walter Wriston to Chuck Prince have presided over a range of banking blowups.

Walter Wriston

Boss of Citicorp from 1967 to 1984, he first established a recklessly ambitious goal of raising earnings by 15% a year, then stretched to hit that target by loading up on no-account Third World loans. Along the way he took an expensive chance and allowed John Reed to build the consumer bank.

John Reed

Taking over in 1984, Reed gamely faced up to the Third World write-offs that Wriston wouldn't, but next gorged on real estate loans and in 1991 almost brought Citicorp to its knees. Regulators explored rescuing the company by merging it with J.P. Morgan, a combination that wags said would be called Citi Morg.

Sandy Weill

He thought up the groundbreaking Citigroup merger and next pushed out his co-CEO, Reed, in 2000. But he then started traveling toward his own monetary mess: king-sized regulatory and litigation charges for compromised research on stocks and for banking dealings with WorldCom and Enron.

Chuck Prince

Succeeding Weill in 2003, Prince focused much of his initial effort on improving Citi's ethics. But disaster was coming from a different direction. As the subprime meltdown has morphed into the credit crunch, Citi has been forced to take billions of dollars in write-downs. Prince resigned in November 2007.

(Fortune Magazine) -- Let us now consider a famous business convulsion. A year ago the largest banking company in the world, Citigroup, was weeks into one of its best quarters in history. It was invincibly marching toward $6.2 billion in profits for the period, a matter so heartening for Citi's oft-maligned CEO, Charles O. Prince III, that as early as May he was astonishingly inviting reporters (like this writer) to come around and chat.

At the same time, Vikram Pandit was about to go to work for Citi. Once a Morgan Stanley standout who'd risen to head the institutional securities group, he was fired in 2005 by CEO Philip Purcell. He and other Morgan Stanley refugees started a hedge fund, Old Lane Partners - and now, in early 2007, Pandit was deep in discussions with Lewis Kaden, vice chairman of Citi. In July they closed a deal for Citi to buy Old Lane, which had $4 billion in assets, and to make Pandit head of Citi Alternative Investments. The price Citi paid, an estimated $800 million, was scorned in the press as too much for a fund rumored (accurately) to be performing poorly.

But the point, Kaden told Fortune this past March, was not for Citi (C, Fortune 500) to secure a hedge fund business but rather to capture the talent of Pandit and his team. That was like acquiring Morgan Stanley's (MS, Fortune 500) trading establishment, Kaden said, without paying billions to do it. Not that Kaden had a clue, he quickly added, that this talent would so soon be direly needed. By October, Chuck Prince had abruptly enlarged Pandit's responsibilities to include just about everything related to markets and large-company banking, and thrown him at Citi's viciously expanding problem in subprime mortgages. "And then," marvels Kaden, mentally streaming through Prince's November resignation and Pandit's December appointment as boss, "to think that he'd be CEO two months from that!"

Well, yes - that is pretty amazing, and this lightning chain of events will surely go down in business history. But we're now past the scene setting and into the nub of it all: Can any CEO, this newest one included, actually manage Citigroup, a company that simply may be too big and complex for any boss to wrestle to the mat?

A matter of people, organization and execution

On that, we can give you the opinion of one particularly interested and well-placed individual. Talking in April to Fortune in his minimally decorated Manhattan office, a few floors above Park Avenue's constant traffic, Pandit himself said that without question Citi can be managed. It is only a matter, he said, of people, organization, and execution. And by the way, he's not going to break it up.

Right now, there's no way to know whether Pandit truly has this job scoped out or has just been overly influenced by having the levers of the Citi franchise suddenly in his hands. Decisive answers about the company's manageability will come into view only over time, amid the certain attention of regulators, competitors, and just plain followers of high business drama. In this story, for which we interviewed many current and former key players at Citi, we'll take a hard look at how the banking giant arrived at its current condition and hear from Pandit about his plans to revive it.

Ten years ago, when Travelers Group and Citicorp made the startling announcement that they would merge to form Citigroup, thereby tearing down the wall between insurance and banking, this magazine wrote, "We are at ground zero of one of the most fascinating business and management stories ever to come along."

If anything, reality has so far outstripped expectations: One co-CEO, John Reed, was forced out; the co-CEO who evicted him, Sanford Weill, later flubbed the only succession plan anyone could extract from him; and his designee, CEO Prince, proceeded to preside over the latest and largest of the losses that seem periodically to savage Citi's corporate bank.

That meltdown could hardly have surprised Reed, who in the early days of the merger averred that over time the corporate bank of Citicorp had probably never made money. But Reed, 69, has recently stirred from retirement to register a more cosmic complaint. He told the Financial Times that the whole merger was a "mistake" and raised the possibility that Citi's business model was to blame.

Sandy Weill, 75, whose pride and legacy ride on the fortunes of this merger, immediately riposted on all counts, contending that Citi's "poor" results during the past couple of years are just a matter of bad execution. (Hello, Chuck Prince!)

A $160B drop in market value

Lurking behind those dueling views is the Lost Decade, the period from the euphoria of April 6, 1998 - announcement day for the merger - to today's subprime sinkhole. Adjusted for splits and a spinoff, the stock of Travelers (the acquiring company in the merger) jumped five points to $34 a share on that April day ten years ago. In mid-April of this year the stock price of the equivalent company, Citigroup, was a dismal $24. The high for Citi stock was $57, reached in December 2006. That price gave Citi a market value of $280 billion. Market value of the common stock today: $120 billion, a drop of $160 billion. How big is $160 billion? It exceeds the market cap of Coca-Cola or Google, for example, and is more than six times the value of Bear Stearns at its peak.

And now, to try to rescue this wounded company, here is Vikram Shankar Pandit, 51, born in India, educated in the U.S. in both engineering and finance, known as a quantitative thinker, and largely devoid of experience in consumer banking. Never mind that shortcoming, said Citi director Robert Rubin as the board ended its late-2007 search. Pandit, he said, was the "best athlete," and that's why he got the job.

This athlete will have to conjure an Olympic-quality performance if he's to manage the company successfully. The basic issue is Citi's spread. At year-end the company had 380,000 employees (80% more than the number at its closest competitor in size, Bank of America), who were dispersed over 106 countries and were busily selling a wide range of products- from credit cards to mortgages to investment banking- that are sort of related but not completely. Citi's executives, meanwhile, are candid in saying that the employees share no common culture, typically care less than they should about the global franchise, and are often caught up in corporate politics. The top requisite for managing this menagerie could easily be not operating expertise but a capacity for herding cats.

The sheer difficulty of the job is reflected in the erratic track record of past CEOs and has been proved punishingly by the events at Citi since 2003. Suddenly deciding then that he would retire, Weill proceeded to create a disaster by choosing his general counsel and intensely loyal lieutenant, Chuck Prince, as successor. Prince is very smart, but an operating executive he was not. An integral part of Weill's plan, therefore, was to make Citi's respected consumer head, Robert Willumstad, a virtual partner of Prince's. Willumstad was to be chief operating officer and, as a sign of his stature, earn exactly what Prince did. Weill also thought that he himself would frequently be consulted by his crown prince, Prince. But very quickly Prince took off on his own, leaning on Weill very little.